Funder Dialogue: Hilary Pennington, Ford Foundation

Hilary Pennington is Vice President of the Ford Foundation's Education, Creativity and Free Expression program. She is an expert on postsecondary education and intergenerational change. In this latest installment in our series of conversations with foundation leaders, Hilary and NFF CEO Antony Bugg-Levine discuss how to improve funder/nonprofit dynamics.

Antony Bugg-Levine: Our latest State of the Sector Survey results continue to show nonprofits reporting discomfort discussing core aspects of their financial state honestly with their funders. Yet we’re also seeing some foundations partner with nonprofits in new ways to overcome common constraints. What worries you, and what excites you, about the ways foundations support nonprofits?

Hilary Pennington: I've been thinking about the perennial way in which foundations starve nonprofits through "project-itis" -- consistently funding them to do particular kinds of projects without paying attention to the organization as a whole, and what it takes for it to be a sustainable and durable organization. It does seem as if there is a beginning of a healthy pushback on this issue, that people are more willing to say that unrestricted does not mean unaccountable, and there are ways to work together.

Many of Ford's particular kinds of grantees, including advocacy organizations and social justice organizations, are always going to be disproportionately dependent on foundations. So the challenge for us is: how do we keep that relationship alive, not on autopilot, both for us and the grantees?

Core support can be critical for building organizations, but it can also create a kind of dependence, and in some cases, an expectation of continued support at the same levels. It may be more useful for a funder and nonprofit to admit to each other, at the beginning, that it will likely not be a "forever" arrangement. As such, a funder has an obligation to help the grantee grow their resources. You have an obligation to advocate for them, introduce them to other funders, and to be an opportunity-spotter for areas of growth and development.

ABL: How do you ensure that a grant that is unrestricted is not unaccountable? In my earlier conversation with Ben Cameron of the Doris Duke Foundation, he spoke eloquently about how to achieve that balance in arts organizations. With the social justice organizations you work with, what have you learned in terms of what works and what doesn't work to enable the funder/nonprofit relationship to be one that is trustful and also includes mutual accountability?

HP: Ideally, you establish a relationship of trust so that a grantee can safely say, "we gave you this plan, and we thought were going to be on track for reaching it, but because of these reasons, it is not turning out the way we expected." Sometimes, it is about seizing opportunities. For example, there are nonprofits that are part of the social justice movement that may find there is a moment that happens -- in this case, events in Ferguson and elsewhere -- where the work they do is poised for a breakthrough. So you also want an organization, particularly one where funding is very project-based, to feel safe saying, "we may want to consider a different growth trajectory. If we had an infusion of capital, here is what we would do, and how we would use it to take advantage of this unexpected moment of potential."

One of the only ways you get these kinds of relationships is to invest time. Ideally, you the funder need to be physically in the space of the grantees' organization, not always in your own offices. You have to ask the questions and create a feeling of safety that someone could answer them. You need to ask the leader, "what do you need?" "what is going on?" "what aren't you getting?" and things like that.

ABL: That is a good list of what funders can do to create the conditions in which honest conversations can take place. When you think about nonprofits that are coming to you with an ambitious request to support change or invest in a moment that has a lot of potential, what makes those kinds of requests most compelling?

HP: Part of what makes those requests compelling is when people don't overpromise. So, when you see a fairly disciplined weighing of choices and tradeoffs, instead of shooting for the moon. I think when nonprofit leaders are able to say, "we are going to try and do this, for this period of time, and this is how we will know we are successful, and here is our fallback plan if we are not, and here is when we will stop if we reach success," that is encouraging.

ABL: You said that after years of program-focused grants, there is a slight cracking of the edifice that says you can't trust grantees with anything other than program grants. What do you think is causing that, and do you think there is momentum around a more sophisticated conversation about what it will take to make sure organizations are, in your words, sustainable and durable?

HP: One thing driving this is the failure of some organizations that people thought were strong but got project-ized to death. I can think of more than one example where an organization that had money in the bank failed, in large part because its money was so restricted. In some cases, nonprofits and funders have ignored warning signs like requests for forward-funded grants or extra money here and there, and never had an explicit conversation about what is failing and why.

There are three predicable moments of crisis or deficiencies which nonprofits and their funders tend to gloss over: a transition in executive director, a lack of financial sophistication, and a lack of board strength -- especially for small, rapidly growing organizations with small staffs. When faced with these moments or realities nonprofits and their funders would benefit from more proactive conversations about what is needed to meet mission over the long term.

ABL: One very real challenge we saw in our State of the Sector survey this year is that demand for services continues to rise. 76% of nonprofits reported an increase in demand for services - the 7th consecutive year that a majority have reported increases. For the first time this year, we asked about what happens when nonprofits can't meet demand. 71% report that people go without the service.

How do you as a funder think about the balance between the very compelling needs to expand a program now versus the kinds of things an organization would need to do -- not only with money, but with the leadership's time -- to improve long-term durability such as improve board strength and financial sophistication?

HP: To be a good partner to the nonprofit, you would help them try and do some of each, but the longer-term things are most likely to be given short shrift and are probably the most important things for funders to help them do. Arguably, a better board and savvier financial leadership would help them serve more people downstream.

ABL: Part of the challenge is the dynamic between most nonprofits and foundations. We think we know what you want to hear, which is requests for grants to expand our programs, so we ask for that. We don’t feel comfortable telling you what our real needs are because we don’t want to risk losing your support if you think we’re in trouble. I think it would be a reckless nonprofit CEO who unilaterally disarms from that dynamic; at the same time, we can't maintain a system where nonprofits and funders deceive each other. What do you think will encourage a more open conversation between nonprofits and our funders about what we all need to deliver on our long-term vision?

HP: This makes me think about a conversation we convened a few weeks ago with Paul Shoemaker of Social Venture Partners. Paul brought together a group of seasoned philanthropists who have moved from funding individual organizations to more thinking about systems and policies. They talked about how it takes years of deep relationships, of showing up and helping nonprofits work on initiatives together, before you even get close to the truth, because of how dysfunctional the nonprofit/funder dynamic can be. It is possible that some of the newer entrants to the world of philanthropy -- who are often criticized -- are able to work at a much more relational level, because that is how they view their philanthropic investments, which could be helpful.

ABL: A focus on the long term has emerged as a core trend in our annual survey. When we asked people about their greatest challenges, "achieving long-term financial sustainability" was the most popular of more than 20 choices, with 32% of organizations saying it was a top concern. That said, when we look at what actions nonprofits are taking, many say they are expanding programs, and adding more staff.

HP: Which might make things worse!

ABL: Exactly. It strikes me that in one sense we are coming out of the financial crisis, the fog is lifting, and people are able to look a little further and see long-term sustainability as a concern. At the same time, short-term actions don't seem to be matching the long-term concerns. Is that consistent with what you are seeing with the organizations you work with?

HP: I don't see there being a lot of deep change as the result of a near-death experience. I see most people coming out of crisis mode and returning to old habits. I also think we still have too many organizations that are too small and too duplicative, and we don't have good ways of talking about the implications of that reality and how it might be addressed. Too often, funders handle redundancy by giving each nonprofit a little bit -- perhaps too little to really thrive. And the organizations themselves are not willing and able to say, if someone does this better than me, I'm willing to stop doing it. Or, if someone else does this better than me, I'm willing to let us stop existing. The incentives in the sector are not well set up for people to mutually support each other. This is also a very sensitive area for foundations. We all know that forced marriages don't work!

ABL: I've been on the receiving end of that suggestion and it did not create a wonderful working dynamic for any of us.

HP: Me, too! But wouldn't it be interesting if, instead of giving an organization a grant to be doing something they shouldn't be doing, a funder said," if you can find someone who can partner with you, who is great at doing that, come back and we would be willing to fund that partnership"? That is the kind of changed behavior that I don't see, post-crisis, despite what one would expect.

ABL: We at NFF do a lot of work to support the de-stigmatizing of mergers, and to help our clients and partners recognize they are a strategic response to serving the mission in the long term, and not a sign of desperation. One reason they don't happen enough is that we on the nonprofit side tend to be too precious about our own culture, not just mission. What do you say on the flip side around funders? While there is inefficiency from a fragmented and sub-scale world of nonprofits, private foundations also get precious about wanting to fund on their own and perpetuate their favorite grantees.

HP: The Four Freedoms Fund for immigration reform is a great example of collaboration. A group of funders took the long view of a set of interlocking changes that required national action, state action and local action, and they thought about the field when they began to pool their resources, and then they thought about how to deploy resources to particular organizations, and spent money linking those organizations to each other. From the beginning, they were all trying to work together strategically toward a shared set of goals, and they co-designed the work and that strategy. That model is not appropriate for everything, but similar efforts have happened around postsecondary prison education that we, the Gates Foundation, and others have worked on together.

Funders tend not to advocate among each other as well as we could. Sometimes, it is just a matter of getting on the phone and coordinating resources to help an organization get over a hump or get to the next level. That said, when there is a situation like 10 times, or 100 times, more people than a soup kitchen can serve, that's a whole level of problem that I think philanthropy is not well-equipped to solve.

We also need to get better at evaluation and understanding impact. I know your survey found that many nonprofits are asked to measure impact, but very few funders fully cover those costs; that needs to change.

ABL: Yes, only 3% of nonprofits say evaluation always gets fully funded. But I think that goes back to this question about how do you balance the compelling need to fund programs that allow them to break even doing what they are doing, and the long-term benefit that evaluation would have.

HP: That tradeoff requires constant conversation and adaptation. It is not like there is one answer that is going to be right forever, like you should always put eight percent into a grant for funding evaluation; it is going to depend. Which means that foundations need to be more honest with themselves about what they are going to accomplish with the amounts of money they have, and organizations need to be more honest with themselves about what they can accomplish.

ABL: One thing that strikes me is in a time where we talk a lot about analysis and measurement and outcomes, one thing I take away from this conversation is that there is no substitute for trust-based human relationships built on a commitment to know each other in a real way.

HP: Very true. Tony Bryk of the Carnegie Foundation for the Advancement of Teaching writes about the need for adaptive learning strategies that help organizations “get better at getting better.” This way of thinking requires relationships, but also data, willingness to change, and shared aspirations for what better looks like. Thinking about the funder-grantee relationship in this way might help us all produce deeper and more lasting impact.